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Oct
23

Recession or redirection?

Post By gaia1 in American Monetary Matters

 RECESSION OR REDIRECTION?

OPED article submitted to the New York Times by

Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist

Tuesday, October 23, 2012

We live in turbulent and carbon-constrained times where government, business and civil society are increasingly forced to make major decisions in the next ten years that will influence life on the planet for the rest of the century. At this cross roads the stark decision to be made is whether the world permits itself  to drift into another recession—bigger than the one In 2008— or is willing to generate the courage and insight to redirect the global monetary, financial, economic and commercial systems that enrich the few, impoverish the many and imperil species and the planet. It is argued here that the world will drift into recession within the decade unless we use the reset button and pursue approaches to integrated global governance that emphasize low-carbon and climate resilient sustainable communities development in the global North and South.

Though I am an optimist, I consider the likelihood for recession—larger than the 2008 0ne— to be strong within the next couple of years if present global monetary, financial, economic and commercial policies are not changed and nations continue pursuing national policies that may be rational in terms of national priorities, but irrational in terms of global priorities.

During the recent IMF/WB Annual meeting in Tokyo Yi Gang, vice governor of the China’s central bank, pointed out that the lowered forecasts by the IMF/WB for 2012 from 3.3 percent to 2.2 percent is too optimistic. He saw “an increasing possibility of growth below 2 percent” with the consequence that the developed countries would have plunged into further recession while emerging economies encountered further dramatic slowdown. He considers the global economy to be “on the brink of recession” and he pointed to the European debt crisis, mounting US deficits and stagnant growth in developing countries.

To this analysis we could add recent developments in the US society, where the Dodd-Frank regulations are fought tooth and nail by the banking and financial industry and where Too Big To Fail does not have sound conceptual and political support in the direction of capping the size and complexity of the megabanks. Fortunately, the Volcker rule that would separate investment/ trading/speculation from commercial banking, is now being supported by reports in Britain and the EU, respectively by economist John Vickers and central Finnish banker Erki LiiKanan.

Notwithstanding the emergence of this hopeful tool that would go back to the Glass-Steagall Act of the early thirties, the overall US monetary, financial, economic and commercial situation is still precarious, particularly also due to the political paralysis in Washington. The Federal Reserve System is pushed to carry the main or almost exclusive load to make the economy recover given the stark absence of fiscal legislation by a U.S. Congress which has received the lowest ratings in several decades. Thus, the FED is pushed into an open-ended quantitative easing policy that makes sense nationally, but not globally. IMF head Christine Lagarde rightly points to the need for global cooperation without the power to do much to make this happen. 

It is the lack of global governance institutions that makes the global monetary, financial, economic and commercial systems so fragile and prone to causing a recession. Strong emphasis has to be placed on the challenge of strengthening global governance, particularly integrated global governance where separate social, economic and environmental governance systems are to be integrated. Rightly the Rio 2012 Earth Summit adopted the formulation of such an integrated global governance system as its second theme, calling it Institutional Framework for  Sustainable Development. It did not, however, produce a formulation for such a global governance system, let alone an agenda for pursuing it. Now, notwithstanding its pursuit of Sustainable Development Goals by organizing Post-2015 Global Consultations and other means it still has not pushed the reset button in its formulation of integrated global governance, let alone in its pursuit.

What is needed is an all-out approach to find alternative global governance systems that would redirect the unjust, unsustainable, and, therefore, unstable monetary, financial, economic and commercial systems. One of those alternative global governance systems has been proposed in my recent publication entitled The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation. It presents the conceptual, institutional and strategic dimensions of an international monetary system that would be based upon a carbon standard with, consequently, fixed exchange rates, a Global Central Bank and a balance of payments system that would balance not only financial debts and credits but also ecological (carbon) debts and credits. In such a balance of payments system nations in the global North who are financial creditors and carbon debtors can start negotiating with nations in the global South who are financial debtors and carbon creditors. Equally important, the Global Central Bank in such a carbon-based international monetary system would behave like the central bank in the EU or in the USA in its administrative, regulatory and financial functions.

Since the end of the 19th century when John Stuart Mill advocated a global central bank and during the 20th century when several US Fed Chairmen, including Paul Volcker, and quite a few other observers pointed to the need for such bank in our ever globalizing world, the time has come in the early part of this 21st century to have such central bank. Without it the only main beneficiaries will be the global financial services companies and their affiliated global companies which no longer have any loyalty to nation states or to the people who inhabit them.  Without de-financialization of the globalization process and the adoption of a value-based planning framework that integrates social and ecological values such as are reflected in the Earth Charter the world has no other direction than to drift into another, monstrously large recession with disastrous impacts on people and the planet.

 

Frans C. Verhagen, M.Div., M.I.A., Ph.D., a sustainability sociologist, is the founding president of the International Institute for Monetary Transformation and the author of The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation published by Cosimo Books in June 2012.